John Collett

Income-seeking investors are big winners from the profit reporting season as the leading companies lift their dividends.

Commonwealth Bank, CSL, and Suncorp have lifted their full-year dividends by more than 10 per cent from the previous financial year. Telstra, BHP Billiton, Rio Tinto and IAG have also delivered sizeable dividend increases so far during the August reporting period.

Higher dividends from the big companies means an increase in wealth for many canny Australians. Photo: Louie Douvis

"It really does not get much better than this if you are an income-seeking investor in the market," says Elio D'Amato, chief executive of shares researcher Lincoln Indicators.

He thinks the higher dividends are sustainable and that companies can continue to lift their payouts. "Companies are wary of declaring higher dividends if they do not think they can maintain them," D'Amato says.

Companies do not want to risk the wrath of yield-chasing investors by having to subsequently lower dividends, he says. Peter Warnes, the head of equities research at Morningstar, says given expectations were not that high at the start of the season the results, so far, have been better than expected.

Telstra last week announced a $1 billion share buyback and lifted its final dividend to take the dividend for the year to June 30, 2014 to 29.5 cents from 28 cents during the previous financial year.

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Commonwealth Bank announced a record profit of $8.68 billion last week, a 12 per cent increase on the previous financial year. Australia's biggest bank will pay $2.18 interim dividend, taking the full year payout to $4.01 a share, a 10 per cent increase on a year earlier.

Earlier this month, Rio Tinto reported a $US5.1 billion net profit for the first half of calendar 2014, well above analysts expectations. The dividend per share for the first half of 2014 is US96 cents compared to US83.5 cents for the first half of 2013.

Shane Oliver, the chief economist at AMP Capital Investors, says while it is dangerous to draw any firm conclusions before the reporting season is complete it does look like Australian companies, overall, are doing well.

He says about 70 per cent of companies have seen their profits rise from a year ago. The proportion of companies increasing dividends, so far, is about 67 per cent, which compares with an average of just under 60 per cent in recent years, Oliver says.

The strongest profit rises are coming from the resources sector, particularly Rio, and the big banks continue to do well, particularly the Commonwealth Bank. Sectors outside of financial service and resources, such as retail, are not doing so well.

"The June quarter was not very good for retail sales and they were some profit downgrades in the run-up to results [season], particularly from the retailers," Oliver says.

The dividends [from big companies] are tracking earnings growth, with some that have kicked a little higher.

Morningstar's Peter Warnes expects the big companies will be able to continue to lift their dividends.

"The dividends are tracking earnings growth, with some that have kicked a little higher," he says.

Big companies like Commonwealth Bank, Rio Tinto and Telstra will likely be able to sustain higher dividends for this financial year. Revenue growth has been difficult because of low inflation and economic growth below trend, Warnes says.

Improved earnings have mainly been coming from cost cutting and, with low interest rates, from low interest expenses on debt. He thinks our companies can continue to growth their profits and increase their dividends even though the cost cutting can only go so far.

"The expectations are that the economy will start to gradually pick up as we go through 2015 and interest rates will likely stay low, demand will increase and sales volumes increase," Warnes says.